Audit Committee – 23 June 2015

Chairman:    Councillor Clark
Venue:         Civic Centre, Scunthorpe (Function Room 1)
Time:           10 am

AGENDA


1.  Substitutions (if any).

2.  Declarations of Disclosable Pecuniary Interests and Personal or Personal and Prejudicial Interests (if any).

3.  To take the minutes of the meeting held on 14 April 2015 as a correct record and authorise the chairman to sign.

4.  To note the date and time of future scheduled meetings of the committee.

Tuesday 22 September, 2015 at 10.00 am
Tuesday 19 January, 2016 at 10.00 am
Tuesday 12 April, 2016 at 10.00 am

5.       Sickness Absence.

6.       Data Quality – Update

7.       Information Governance and IT Security Update June 2015.

8.       External Audit Reports.

9.       Internal Audit – Annual Report 2014/2015.

10.     Risk Management Progress Report.

11.     Counter Fraud Progress Report.

12.     Treasury Management and Investment Strategy – Annual Report 2014/2015.

13.     Annual Governance Statement – 2014/2015.

14.     Member Training – Update.

15.     Any other items which the chairman decides are urgent by reasons of special circumstances which must be specified.

Note: Reports are by the Director of Policy and Resources unless otherwise stated.

MINUTES

PRESENT: – Councillor Clark in the chair

Councillors T Foster, Godfrey, Gosling, Glover, Grant and Vickers.

Also in attendance was a representative of KPMG (the council’s external auditors).

The committeemet at the Civic Centre, Scunthorpe.

393     DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.

394     MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 14 April 2015, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chairman.

395     DATES AND TIMES OF MEETINGS – Resolved – That the dates and times of future meetings of the committee be held at 10:00 am on –

Tuesday 22 September, 2015
Tuesday 19 January, 2016 and
Tuesday 12 April, 2016

396     (1)     SICKNESS ABSENCE – Further to minute 364, the Assistant Director Human Resources submitted a progress report informing the committee of sickness absence levels of employees of North Lincolnshire Council and the 2014/15 year-end position.

The Assistant Director explained that the average number of working days lost due to sickness absence in 2014/15 year end was 9.47 days against a target of 8.25 days. This showed that sickness absence levels remained at a fairly consistent level compared to 2013/14 figure of 9.46. Statistical data for full time equivalent short term and long term absences, periods of sickness absence, reasons for sickness absence, and continuing action being taken to address sickness absence, was also set out in the report.

The Assistant Director Human Resources responded to questions asked by members.

Resolved – That following consideration of the above report and discussion of its content, the committee agrees that there is continuing assurance that the risk to capacity due to sickness absence is being managed through adequate controls.

397     (2)      DATA QUALITY UPDATE – Further to minute 352, the Director of Policy and Resources submitted a report providing the committee with a position statement on the current status of Data Quality Audits of the council’s priority Performance Indicators (PI’s). The report also provided members with an overview of wider developments planned to improve data quality across the council and confirmed that –

  • The target of auditing 100% of the current priority performance indicators had been achieved;
  • Findings from the audits indicated that overall data quality and review of audits was robust, and
  • A plan was currently being developed to measure and improve the council’s data quality across key systems, processes and functions.

A representative of KPMG, the council’s external auditor who was present at the meeting commented upon the report welcoming the evidence supporting the overall robust data quality, and emphasised the importance of receiving assurance on this matter.

Resolved – That following consideration of the above report and discussion of its content, the committee agrees that the report provides sufficient assurance on the adequacy of the council’s data quality arrangements.

398     (3)      INFORMATION GOVERNANCE AND IT SECURITY UPDATE – JUNE 2015 – The Director of Policy and Resources submitted a report providing the committee with a position statement on the council’s Information Governance and IT Security functions.

The report explained that information was a key council asset and it was crucial that it was looked after with the same care as other critical assets, such as finance, people and land/property. The council had a legal obligation to comply with information related legislation, notably the Data Protection Act 1998, Freedom of Information Act 2000 and the Environmental Information Regulations 2004.  Collectively these requirements and activities were referred to as ‘Information Governance’. An internal Information Governance Framework comprising 16 schedules, underpinned by associated policies, set out how the council would comply with legislation and good practice.

The Director in his report summarised examples of compliance with Information Governance legislation and good practice, work carried out which demonstrated improvement progress over the past six months, and highlighted further planned Information Governance and IT Security improvements over the forth coming year.

The Director responded to members’ questions on aspects of his report.

Resolved – That following consideration of the above report and discussion of its content, the committee agrees that the update report provides sufficient assurance on the adequacy of the council’s Information Governance arrangements.

399     (4) EXTERNAL AUDIT REPORTS – The Director of Policy and Resources  submitted a report on two external audit reports, ‘Certification of Grant Claims’ and ‘Returns Fee Letter and Progress and Technical Update Report’.

The Director in his report explained that the annual fee letter issued on the 24 April 2014 set out the indicative composite fee for the certification work of £20,820. The fee was based on certifying only the Housing Benefit Subsidy Claim 2014/15. The Certification of Grant Claims and Returns Letter, attached at appendix A set out the audit arrangements for 2014/15 Housing Benefit Subsidy Claim. The fee only provided for basic audit work and did not include additional testing requirements or if the claim or return was amended or qualified by external audit.

The Director also explained that The Progress and Technical Update report provided the Audit Committee with a summary on progress in delivering external audit’s statutory responsibilities. It also highlighted key emerging national issues and developments which may be of interest to members. A copy of the report was attached in appendix B.

A representative of KPMG, the council’s external auditor who was present at the meeting commented upon the reports and responded to members’ questions.

Resolved – (a) That following consideration of the above reports and discussion of their content, the committee notes the Certification of Grant Claims and Returns Fee Letter and Progress and Technical Update Report, and (b) that the committee receives further reports as the work is concluded in the Certification of Grant Claims and Returns Report, Annual Governance Report and Annual Audit Letter.

400      (5)    INTERNAL AUDIT – ANNUAL REPORT 2014/2015 – The Director of Policy and Resources submitted a report which provided an audit opinion on the adequacy and effectiveness of the council’s control environment based upon work carried out by Internal Audit in accordance with the approved 2014/15 audit plan. This provided the committee with an important source of assurance when considering the Annual Governance Statement and complied with the Public Sector Internal Audit Standards (PSIAS) and The Accounts and Audit Regulations 2015.

The report explained that the requirement for internal audit was supported by statute in the Accounts and Audit Regulations 2015 and the Local Government Act 1972.  The Accounts and Audit Regulations stated that a “relevant body must undertake and effective internal audit to evaluate the effectiveness of its risk management, control and governance processes taking into account public sector internal auditing standards of guidance”. Each year internal audit provided an independent appraisal of internal control as a contribution to the proper economic, efficient and effective use of resources.

In his report, the Director explained that the level of audit coverage during the year was considered sufficient to be able to offer an opinion on the overall adequacy and effectiveness of the organisation’s control environment.  Notwithstanding that, some of the planned reports for the year had yet to be finalised, the fieldwork for the outstanding reports had been completed, and there was nothing within the reports that would cause the overall opinion to change. The audit plan was flexible to respond to changing circumstances and emerging risks and work was prioritised accordingly. It contained 123 planned assignments and 23 unplanned assignments, which were listed in appendix A.

An opinion on the level of adequacy of internal control was given on each audit and the level and explanation of opinions and associated performance was highlighted in the report. Based on knowledge of the council’s systems and procedures, the extent of work undertaken by Internal Audit, and as a result of the responses to audit recommendations, the overall assessment was that Internal Audit could provide assurance that systems were adequate and internal control generally effective during 2014/15. It must be acknowledged that internal control systems were designed to manage rather than eliminate the risk of failure, therefore this statement could only provide reasonable and not absolute assurance of the effectiveness of the system of control.

In reaching this opinion the report identified factors that were taken into particular consideration and summarised under the following headings:-

  • Risk Management;
  • Corporate Governance;
  • Fundamental Systems;
  • School Audits;
  • Counter Fraud Work;
  • Savings;
  • Performance, and
  • Shared Service Development

The Director suggested that the committee should consider whether Internal Audit’s Annual Report provided sufficient assurance on the adequacy of the council’s internal control environment in 2014/15.

Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Internal Audit Annual Report 2014/15 provides sufficient assurance on the adequacy and effectiveness of the council’s internal control environment, and (b) that the Internal Audit Annual report for 2014/15 be approved and adopted.

401     (6)      RISK MANAGEMENT PROGRESS REPORT – Further to minute 379, the Director of Policy and Resources submitted a report updating the committee of key issues arising from Risk Management work. Regular reporting on risk management issues was an important source of assurance for the committee to fulfil its role, and provided supporting evidence for the annual approval of the council’s Governance Statement.

The Director in his report addressed and commented upon progress made including –

  • Progress on the evaluation of controls to manage risks as part of the revised Strategic Risk Register, the outcome of the work to be reported to a future meeting of the committee;
  • Edition 20 of the Risk Roundup newsletter issued in June 2015 was attached as appendix A of the report;
  • Work being carried out to continue define the council’s risk appetite;
  • A presentation on how Child Sexual Exploitation risks are managed in Children’s Social Care was delivered to the Risk Management Group, and
  • A recent internal audit review of partnerships highlighting improved governance arrangements.

Resolved – That following consideration of the above report and discussion of its content, the committee agrees that the Risk Management Progress Report contributes to assurance on the adequacy of risk management arrangements.

402     (7)      COUNTER FRAUD PROGRESS REPORT – The Director of Policy and Resources submitted a report informing the committee of key issues arising from counter fraud work. Regular reporting on counter fraud issues was an important source of assurance for the committee to fulfil its role and provided supporting evidence for the annual approval of the Governance Statement.

The Director in his report addressed and commented upon counter fraud work which was summarised under the following headings –

  • Counter Fraud Plan Progress – a summary of the work was provided in appendix A;
  • Proactive Work – including the Audit Commission’s National Fraud Initiative annual exercise;
  • Reactive Work;
  • Work of the Benefit Fraud Investigation Team – including successful prosecutions, sanctions of several fraud cases, and joint investigation work with the Department for Work and Pensions (DWP);
  • Single Fraud Investigation Service (SFIS) – An update on the government’s decision to create single fraud investigation service with North Lincolnshire Council’s transfer date to the DWP being 1 November 2015;
  • CIPFA Code of Practice Managing the Risk of Fraud and Corruption – embedding the code and guidance notes within the counter fraud work undertaken by North Lincolnshire Council, and
  • Fighting Fraud in North Lincolnshire – training on counter fraud arrangements offered to members in April 2015 as part of the council’s Elected Member Training Programme.

Resolved – (a) That following consideration of the above report and discussion of its content the committee agrees that the progress report provides sufficient assurance on the adequacy of risk management arrangements; (b) that the counter fraud work programme delivers a sufficient level of assurance on the adequacy of counter fraud arrangements and (c) that Neil Scrimshaw and his Fraud Investigation Team be thanked for the work carried out over the years.

403     (8)      TREASURY MANAGEMENT AND INVESTMENT STRATEGY ANNUAL REPORT 2014/15 – The Director of Policy and Resources submitted a report on the council’s treasury performance in 2014/15. The benchmark for measuring performance was measured against the Treasury Strategy set by the council at its meeting on 24 February 2014.

The report explained that each year the council approved a treasury management and investment strategy which was prepared in line with –

  • The CIPFA (Chartered Institute of Public Finance and Accountancy) Code of Practice in the Public Service Fully Revised 2011;
  • The Prudential Code Fully Revised Second Edition 2011;
  • The Local Government Finance Act 2003, and
  • Department for Communities and Local Government (DCLG) Guidance

The code of practice required that the council received a report on treasury management strategy at the start of the financial year, at mid year and at year end. The Audit Committee received progress reports at each meeting and an annual report on the outturn position.

The Code also required the Council to maintain suitable Treasury Management Practices (TMPs), setting out the manner in which the organisation would seek to achieve its Treasury Management policies and objectives, and prescribing how it would manage and control those activities. As part of this ongoing process the Treasury Management Practices adopted by the council were reviewed on a regular basis.

The Director in his report outlined the annual strategy under headings which covered – the Strategy for 2014/15, the Investment Strategy; the Borrowing Strategy, and How the Council Performed, including key investment and borrowing statistics and associated arrangements indicating how the council had performed against the strategy.

A representative of KPMG, the council’s external auditor who was present at the meeting commented upon the report.

Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Treasury Management and Investment Strategy Annual Report 2014/15 provides sufficient assurance on the effectiveness of arrangements for treasury management, and (b) that  Treasury Management’s performance for the 2014/15 financial year be noted.

404     (9)      ANNUAL GOVERNANCE STATEMENT 2014/15 – The Director of Policy and Resources submitted a report presenting the council’s draft Annual Governance Statement (AGS) 2014/2015 for the committee’s comments and approval. The report explained that the Accounts and Audit Regulations 2015 required the council to publish with its accounts an AGS. The AGS must accompany the final accounts and be considered in its own right, as had been the case at this meeting. This was due in September, however the Audit Committee had decided to consider the AGS in June as well as in September to allow early action to be taken on any issues identified by the AGS. The Statement would be updated to reflect assurance provided through the outcome of external audit’s final accounts work and presented again in September for approval.

The Director in his report also stated that CIPFA guidance to support councils to produce the AGS had been used. The document provided an example of an AGS and sources of assurance and evidence to compile the statement. Further guidance was expected later in the year for consideration in developing the 2015/16 AGS which would be provided to the committee when available. The report explained that the Annual Governance Statement set out the council’s governance framework and the results of the annual review of the effectiveness of the council’s arrangements. Sources of assurance to support the statement were gathered throughout the council in the form of annual assurance statements prepared by Directors. These statements provided an evaluation of the adequacy of internal control within their service area and were evidenced by sources of assurance and managerial processes. Assurance was also provided from regular reports on various issues to the Audit Committee. Independent reviews carried out by internal audit in key areas such as risk management, corporate governance and fundamental financial system work were also important sources of assurance. External audit reviews and inspections also contributed as sources of assurance.

In accordance with best practice, a management team comprising the Director of Policy and Resources, Assistant Director Legal and Democratic and Head of Audit, Risk and Insurance had reviewed the draft AGS.

The draft Annual Governance Statement 2014/2015 was attached as appendix A to the report and showed that the council had well-established governance arrangements that were monitored and reviewed on a regular basis. Changes and enhancements described in the AGS demonstrated the council’s commitment to continual improvement. Significant governance issues requiring further development were identified in the AGS and summarised in the report.

The Director also reminded the committee that the Annual Governance Statement for 2014/15 represented the culmination of internal and external assurance sources. Therefore, the statement would need to be updated to reflect the outcome of the final accounts audit process prior to resubmission to the committee alongside the audited accounts.

The Director suggested that members should consider whether the AGS provided the committee with sufficient assurance on the council’s governance arrangements in 2014/2015 prior to approval, and make any amendments or seek clarification as necessary.

Members asked questions on the content of the AGS which the Director responded to.

Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Annual Governance Statement for 2014/15 provides a sufficient level of assurance on the adequacy of governance arrangements throughout the council to allow the committee to fulfil its role, and (b) that the Annual Governance Statement for 2014/2015 be approved and a further update be submitted to the committee alongside the audited accounts in September 2015.

405     MEMBER TRAINING UPDATE – The Director of Policy and Resources updated the committee informing members that 2015/16 training events had been scheduled in the council’s committee timetable/yearbook as follows –

Already carried out –

11 June 2015 – Welfare Benefit – Universal Credits;

17 June 2015 – Overview and Scrutiny;

22 June 2015 –  Audit Committee Roles and Responsibilities.

To be carried out –

8 July 2015 – Introduction to Local Government Finance;

15 September 2015 – Understanding the Council’s Final Accounts;

19 November 2015 – IT and Information Governance

16 February 2016 – Budgets, Business Rates and Council Tax, and

9 March 2016 – Effective Governance, Managing Risk, Insurance and Fraud.

Members of the committee were encouraged to attend the above, and to suggest any further training they may require over the council year.

Resolved – (a) That the Director be thanked for interesting training events held during 2014/15, and (b) that the above training events to be carried out for 2015/16 be noted, welcomed and listed on the agenda under this item for future meetings of the committee.

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